Selecting the right project is the first step in effective project management. It should be based on the team’s competence, skills, and capacity. Thus, project selection methods offer the right techniques to filter the best projects out of the pipeline. This concept is widely accepted and bears great importance in the world of project management.
Thus, in this blog, we’ll see 13 project selection methods for successful completion. All these methods are easy to apply and use. Therefore, don’t forget to take some time out for this and not just pick n choose randomly.
What are Project Selection Methods?
Almost all organizations face the scenario where there are plenty of projects in the pipeline. However, it’s hard to pick and choose between them. Thus, they need to select the ones that not only bring profit but also comply with the goals and objectives of the company.
There are two main methods for project selection:
- Benefit Measurement Method
- Constrained Optimization Method
Both methods have their advantages and disadvantages. However, you’ve got to know them in depth to choose between the two.
The Constrained Optimization method is a better fit for large and complex projects. On the other hand, the Benefit Measurement method is used for small and less complicated projects.
Importance of Project Selection Methods
Project selection is of the main factors responsible for your company’s downfall and progress. Selecting the right project isn’t all about your gut feelings. Even so now, when companies are bombarded with numerous projects and take the gut feeling by surprise too.
This is where one needs to be aware of the various project selection methods that can bring factual data for you to make the right decision. Project Selection methods aren’t only easy to imply but also reduce the risk of project failures.
Project selection bears a lot of benefits. Some of the most notable benefits are discussed below.
Benefits of Project Selection Methods
- It helps to make the right decision
- Reduces the risk of project failure
- Helps to increase companies’ profits
- Factual decisions are made
- There are no client biases
13 Best Project Selection Methods
To select the project within the available resources and the right calculations, apply the following project selection methods.
Benefit Measurement Method
A comparative approach is used in this method. Cost benefits are calculated and then compared to decide which project is more beneficial to the company. Various methods are applied to compare the benefits.
Some of them are:
1. Cost-Benefit Analysis
Cost-benefit analysis is a method where the cost invested in the project should be less than the benefits. Therefore, in this method, the ratio between the present value of the inflow to the present value of outflow is calculated.
The projects with the highest ratio are then selected as they are set to provide more return than the others.
2. Payback Period
It is the ratio that is calculated between the total cash to the average per period cash. Thus, it is the period in which the total investment of the project is recovered.
Companies usually tend to select projects with shorter payback periods. Since this is the time when the organization gains its benefits in the true sense.
3. Net Present Value
In this project selection method, the net present value of the project is calculated to select the best-suited project. NPV is the difference between the current value of the cash inflow and the current value of cash outflow.
To select a project, make sure that the NPV is positive. The projects with a higher NPV should be selected. Even though NPV takes into consideration the future value of the project, there are some limitations to it.
Firstly, it doesn’t specify the project profits and losses. Secondly, there isn’t a generally accepted method for calculating discounted prices.
4. Economic Model
It is used to calculate the firm’s financial profits. It is used to define the project’s value after deducting all capital costs. Thus, the net profit after deducting the taxes and expenditures is what an economic model defines.
Similar to other projects, the project with the highest economic value-added EVA is selected. Moreover, EVA is represented in numerical form and not as a percentage.
5. Opportunity Cost
Opportunity cost is defined as the cost that you give up to select something else. Most of the time the project selection is hard. However, you can calculate the opportunity cost of both to decide which better should be given up. The projects with the lowest opportunity cost are then selected.
6. Internal Rate of Return
The internal rate of return or IRR is the maximum expected rate on a project. It is the discount rate that makes the net present value of the project zero. The project with the higher IRR is then selected.
However, IRR should not be the sole determinant of selecting a project. Other methods like NPV or the Payback period should also be taken into consideration.
7. Discounted Cash Flow
Discounted cash flow is another major determinant in project selection methods. It is unignorable that the value of money keeps on decreasing with time. For instance, $10,000 won’t have the same value in the next few years.
Therefore, it is essential to consider the discounted cash flow value while selecting a project.
8. Scoring Model
In this method, projects are scored against various parameters. The project with the highest score is then selected in the project selection methods. The project scoring committee assigns the same scoring parameters to all the projects to make an objective choice.
Constrained Optimization Methods
This method uses mathematical models for selecting projects. This is one of the reasons that it is used for large and complicated projects with a lot of calculations. Some of the main techniques used in this method are:
9. Linear Programming
Linear programming is a constrained optimization method for project selection. In this method, the costs of the project are effectively reduced by reducing the duration of the project. The activity is run is crash time to reduce the activity time of the project as a whole.
10. Non-linear Programming
In this constrained optimization method, the problems are solved where some of the objectives of the project are nonlinear.
11. Integer Programming
Integer programming helps to select a project based on integer values rather than fractions. Thus, the values are calculated in integer forms to select a project.
12. Dynamic Programming
In dynamic programming, the problems are solved by dividing them into two similar problems.
13. Multiple Objective Programming
Various options are taken into consideration and mathematical models are applied to all to solve the problem.
Role of a Project Manager in Project Selection Methods
Project managers play a pivotal role in the selection of projects. They are the ones who take the potential projects for the future in front of the board and wait for their affirmation of it. Therefore, they need to be well aware of their role in it.
1. Lead with experience
Bring your team together and talk about all the pros and cons of each project. Take your experience into consideration and work around it. Your experience would help you know about various clients or industries on a personal basis, which would help you to make a rational decision.
2. Refrain from bias
Don’t select a project just because of some personal relations with the client or reject it due to some personal differences. Always stay objective and do what’s best for the organization.
3. Understand companies’ objectives
Always be aware of the goals and objectives of the company. Select projects that are beneficial for the company’s progress.
4. Be aware of the budget constraints
Have updated information on the company’s financial constraints. Don’t select high-budget projects that would put your company towards downfall.
5. Be informed on the project selection methods
Learn about the project selection methods and always apply them for project selection. Don’t just listen to your heart. Go for the facts!
To Wrap it up!
Organizations should try different project selection methods and choose the ones that bring out the best results. All angles should be taken into consideration and a non-biased decision should be made. It’s always better to make decisions based on factual data, that is why project selection methods are vital for an organization.